That Guy Who Price-Gouged AIDS Patients Did It to Kids with Kidney Disease

[Eddie Teach]

[grumbler]

The markets in the US are different in a bunch of ways from Canada, but it has nothing to do with "free riders". 

It has everything to do with free riding.

Either Canadian drug consumers are helping to amortize the R&D costs of new drugs or they're free riding on the people that are, in this case American consumers.

Alternately, the excess costs in the US have little to do with R&D and everything to do with marketing and legal costs.

That's also possible, but your argument is a lot more convincing than is.

[Malthus]

The markets in the US are different in a bunch of ways from Canada, but it has nothing to do with "free riders". 

Assertions are not arguments.

Economics would say that the drug companies are willing to sell to secondary markets like the Canadian market at any price that doesn't exceed marginal cost, if they can make their primary market pay more than average total cost.  That is the "free rider" problem.

Now, the free rider problem may not exist in this case, but it cannot be dismissed just because

And lack of knowledge about the Canadian healthcare system isn't a sound basis for an argument, either.   

For there to be a "dismissal", there has to be an "argument" supported by things known as "facts".

Let's look at some "facts", shall we?

Costs in the US are higher than anywhere else in the developed world. Is this because the rest of the world are "free riders" on the US's R&D? Is the rest of the world a "secondary market"?

That seems to me to be an extraordinary assertion.

The real reason isn;t some sort of sinister conspiracy to make the US pay for the costs of R&D, but the fact that companies can make extraordinary profits in the US because of negotiation failure.

http://www.medscape.com/viewarticle/835182

The major reason for the disparity in pricing is that the United States lacks any sort of central or universal healthcare system or agency that regulates across the board cost. In contrast, negotiations of drug prices between governments and pharmaceutical companies are routine in Canada, most European nations, and most countries in the Middle East and Far East. They have centralized authorities to negotiate more favorable prices with manufacturers, and some also have drug formularies and advisory boards that put restrictions on the use of new and expensive medications.

"In the US, we are covered under a fragmented system, where there really aren't enough numbers to negotiate effectively," said Leigh Purvis, director of health research at the Public Policy Institute at AARP (formerly known as the American Association for Retired Persons), a large membership organization for people 50 years and older. "We have different health insurers and they don't represent enough people to actively and successfully negotiate prices in the same way that other countries do."

The central fallacy is the notion that 'profits = R&D expediture', or that huge profits are necessary because of huge R&D costs. This is nowhere close to being true, and is based on a fundamental misapprehension of the way the market works.

But at least for some new drugs, R&D amounts to purchasing a smaller company that already developed the product. An example is sofosbuvir, which has borne the brunt of intense scrutiny, including an ongoing Senate investigation. Gilead did not develop the product, but instead purchased a small company —Pharmasset, Inc. — for $11.2 billion in 2012. Pharmasset actually did the R&D and reported that the related costs for the drug totaled $62 million, and that it had $177 million in R&D costs company-wide over the 3 years that the drug was being developed. The company expected to profitably sell sofosbuvir for $36,000 a year — less than half of what Gilead is currently charging for it.

A similar situation is the case of pirfenidone (Esbriet), which just received FDA approval for the treatment of idiopathic pulmonary fibrosis. The drug was developed by InterMune, which pharmaceutical giant Roche recently purchased for about $8 billion. When the drug was approved, Roche announced that it would sell for $94,000 a year. Peter Bach, MD, one of the renegade physicians from MSKCC who pushed back on the price of aflibercept, notes in a report published in Forbes that if full market penetration is achieved, Roche could make back their full investment in 1 year.

"Once again, the potential to affix this huge price tag to Esbriet didn't spur the innovation, it spurred Roche to pay up for the company," writes Dr Bach. "Today's shareholders are super happy (and I'm glad for them), but how many of them were even around and invested in the company back when the high-risk decision to develop Esbriet was made?"

Moreover, companies are reluctant - and with reason - to transparently disclose how much actually goes to R&D:

Ignagni also questioned the lack of transparency in defining and separating R&D, marketing, separating out profits. "When we are talking about all the other industries in healthcare, there's not that kind of transparent ability to look," she said. "If you do start looking, you really see now that manufacturers are charging whatever they can get away with. We can't have a system that operates that way. We can't sustain it."

The fundamental differences between the US and Canadian drug markets are: (1) direct to consumer drug advertising of prescription-only drugs; (2) a lack of any centralized formulary bargaining mechanism; and (3) far higher drug prices. It seems to me, and to various commentators, that (1) and (2) have more to do with (3) than "free riding" on R&D costs. 

No doubt the mantra that the rest of the world ought really to be paying its fair share of Drug costs because otherwise they are free riders on R&D expenditures soothes the feelings of US consumers who are getting gouged by their system, but that doesn't actually make it true.

[Admiral Yi]

Alternately, the excess costs in the US have little to do with R&D and everything to do with marketing and legal costs.

Meaning what, that R&D cost are insignificant?

The question you are asking is what sets the price in the US.  The price of drugs, like most things, is set by the intersection of supply and demand.

But that's not the relevant question to address the point I was raising.  That is: if the US set prices like Canada does, would the drug companies be incentivized to develop new drugs?  I maintain they would not, at least not to the extent they are now.

[Martinus]

Which only shows why drug research should be state funded. Selling balloons and lollypops make for a good business. Healthcare and education don't and shouldn't be.

[The Brain]

Which only shows why drug research should be state funded. Selling balloons and lollypops make for a good business. Healthcare and education don't and shouldn't be.

State funded, or state funded and state run?

[Malthus]

Alternately, the excess costs in the US have little to do with R&D and everything to do with marketing and legal costs.

Meaning what, that R&D cost are insignificant?

The question you are asking is what sets the price in the US.  The price of drugs, like most things, is set by the intersection of supply and demand.

But that's not the relevant question to address the point I was raising.  That is: if the US set prices like Canada does, would the drug companies be incentivized to develop new drugs?  I maintain they would not, at least not to the extent they are now.

Once again, the maximum prices set by the PMPRB in Canada is not a major factor in why Canadian drug prices are on average a lot lower - that is down to the fact that the provinces negotiate drug prices with the individual manufacturers for inclusion on provincial public insurance formularies. There is nothing stopping US insurers from doing that, only they don't have the same bargaining power - they are more fragmented.

There is also the issue of how much R&D makes pharmacoeconomic sense. Many "new" drugs are not significant improvements over the old - the primary function is to extend the effective patent life. This is a tecnique known as "evergreening" and it works this way: it makes more sense to "tweak" a drug you know works, and then market it heavily, than to sink costs into developing something genuinely new - even if the "tweaked" version is no more effective than the "old" drug. Companies attempt to do this to avoid competition from generics, which invariably occurs when their patent monopoly runs out. Of course docs are free to prescribe the generic version of the "old" drug, but they may find this difficult to do if the patent is sold on the merits of the "new, improved" drug - via heavy investiment by the company in direct-to-consumer advertising.

A national system with smaller "payors" with less bargaining power, combined with allowing direct-to-consumer marketing of prescription-only drugs, simply leads to higher prices and greater profits. This has nothing to do with a genuine need to cover "pharmacoeconomically useful" R&D costs.

Is that system really necessary for funding the actual "brakethrough" drugs, or just a cynical rip-off to make maximum profits?

[Admiral Yi]

Once again, the maximum prices set by the PMPRB in Canada is not a major factor in why Canadian drug prices are on average a lot lower - that is down to the fact that the provinces negotiate drug prices with the individual manufacturers for inclusion on provincial public insurance formularies. There is nothing stopping US insurers from doing that, only they don't have the same bargaining power - they are more fragmented.

You've said this before, but I still don't see what this has to do with the issue of free-riding.

There is also the issue of how much R&D makes pharmacoeconomic sense. Many "new" drugs are not significant improvements over the old - the primary function is to extend the effective patent life. This is a tecnique known as "evergreening" and it works this way: it makes more sense to "tweak" a drug you know works, and then market it heavily, than to sink costs into developing something genuinely new - even if the "tweaked" version is no more effective than the "old" drug. Companies attempt to do this to avoid competition from generics, which invariably occurs when their patent monopoly runs out. Of course docs are free to prescribe the generic version of the "old" drug, but they may find this difficult to do if the patent is sold on the merits of the "new, improved" drug - via heavy investiment by the company in direct-to-consumer advertising.

A national system with smaller "payors" with less bargaining power, combined with allowing direct-to-consumer marketing of prescription-only drugs, simply leads to higher prices and greater profits. This has nothing to do with a genuine need to cover "pharmacoeconomically useful" R&D costs.

Is that system really necessary for funding the actual "brakethrough" drugs, or just a cynical rip-off to make maximum profits?

This has the appearance of arguing in the alternative: Canadians don't free ride, but if we do it's because we're free riding on worthless stuff.

[Malthus]

Once again, the maximum prices set by the PMPRB in Canada is not a major factor in why Canadian drug prices are on average a lot lower - that is down to the fact that the provinces negotiate drug prices with the individual manufacturers for inclusion on provincial public insurance formularies. There is nothing stopping US insurers from doing that, only they don't have the same bargaining power - they are more fragmented.

You've said this before, but I still don't see what this has to do with the issue of free-riding.

Simple - it is a difference in ability to negotiate, not evil communist guv'ment price-fixing, that is the driver for the difference in prices. Point is that there is nothing stopping the Americans from doing the exact same, if they only can get their act together. The companies are simply exploiting the fact that they can't.

There is also the issue of how much R&D makes pharmacoeconomic sense. Many "new" drugs are not significant improvements over the old - the primary function is to extend the effective patent life. This is a tecnique known as "evergreening" and it works this way: it makes more sense to "tweak" a drug you know works, and then market it heavily, than to sink costs into developing something genuinely new - even if the "tweaked" version is no more effective than the "old" drug. Companies attempt to do this to avoid competition from generics, which invariably occurs when their patent monopoly runs out. Of course docs are free to prescribe the generic version of the "old" drug, but they may find this difficult to do if the patent is sold on the merits of the "new, improved" drug - via heavy investiment by the company in direct-to-consumer advertising.

A national system with smaller "payors" with less bargaining power, combined with allowing direct-to-consumer marketing of prescription-only drugs, simply leads to higher prices and greater profits. This has nothing to do with a genuine need to cover "pharmacoeconomically useful" R&D costs.

Is that system really necessary for funding the actual "brakethrough" drugs, or just a cynical rip-off to make maximum profits?

This has the appearance of arguing in the alternative: Canadians don't free ride, but if we do it's because we're free riding on worthless stuff.

Huh? "Free riding" assumes that something worthwhile is being "free rided" on. What's the accusation - that Canadians (hell, not just them - the rest of the developed world, too - no-one pays as much as Americans for drugs) are "free riding" because they aren't doing their duty in contributing to drug companies' enormous profits?  I thought the issue was that they weren't paying their fair share of socially-valuable R&D expenses.

[Admiral Yi]

Simple - it is a difference in ability to negotiate, not evil communist guv'ment price-fixing, that is the driver for the difference in prices. Point is that there is nothing stopping the Americans from doing the exact same, if they only can get their act together. The companies are simply exploiting the fact that they can't.

Pretend I'm a very stupid person and explain in very simple words how the fact that US could, if it wanted to, duplicate the Canadian drug reimbursement system demonstrates that Canadians are not free riding.

Huh? "Free riding" assumes that something worthwhile is being "free rided" on. What's the accusation - that Canadians (hell, not just them - the rest of the developed world, too - no-one pays as much as Americans for drugs) are "free riding" because they aren't doing their duty in contributing to drug companies' enormous profits?  I thought the issue was that they weren't paying their fair share of socially-valuable R&D expenses.

I see.  So is your position that Canadians don't free ride on socially valuable R&D?

[grumbler]

Assertions are not arguments.

Economics would say that the drug companies are willing to sell to secondary markets like the Canadian market at any price that doesn't exceed marginal cost, if they can make their primary market pay more than average total cost.  That is the "free rider" problem.

Now, the free rider problem may not exist in this case, but it cannot be dismissed just because

And lack of knowledge about the Canadian healthcare system isn't a sound basis for an argument, either.   

For there to be a "dismissal", there has to be an "argument" supported by things known as "facts".

Let's look at some "facts", shall we?

(snip of all the "evidence" not relevant to my assertion)

If you are going to "quote" a post of "mine," you should really make an "effort" to respond to the post you are "quoting."  This is something an "attorney" should already know.  Your "facts" do not in any "way" invalidate my "argument."  In fact, your entire "post" merely confirms the accuracy of my assertion. 

And your "scare" quotes don't "support" your "argument," either.

[Jacob]

" "

[Malthus]

[Jacob]

Man, everyone's having a great time in this thread 

[Martinus]